Since many of us are individual retail investors, it may be that we really don’t need to know about institutional-grade property since it’s usual investors are managers investing other people’s money on a large scale, like insurance companies, pension funds, endowments, foundations, investment banks, investment managers, hedge funds and real-estate investment trusts. Institutional investors trade securities in large quantities and receive preferential treatment and lower fees.
Non-institutional investors are individuals managing their own money for their own goals. Because of their smaller purchasing power, retail investors usually have to pay higher fees on their trades as well as higher marketing fees, and commissions (Investopedia).
The property itself is as large as the investment dollars involved. An institutional-grade property is generally a property that is of sufficient stature to attract attention from large national and international investors. According to irei.com, core investments typically include office, retail, industrial, and apartments. Specialty investments include hotels, healthcare facilities, senior housing, student housing, self-storage facilities, and mixed-use properties.
Institutional-grade properties are usually Class A properties, containing state-of-the-art mechanical, electrical, life safety, elevator, and communications systems. Their finishes are of the highest standards and they often provide the occupants with an exceptional mix of amenities in variety and quality (bike storage, workout areas, on-site restaurant, etc).
Institutional-grade properties may be located in secondary metropolitan statistical areas (MSAs) with a very stable tenant base. Secondary MSAs are categorized as MSAs with employment between one and two million, based on the raw number of individuals employed as reported by the Bureau of Labor Statistics’ Metropolitan Area Employment and Unemployment report (Dylan Wall).
Interestingly, the Trepp 2018 study pointed out that the top three performing secondary MSAs in 2018 were Austin-Round Rock, Orlando-Kissimmee-Sanford, and Nashville-Davidson-Murfreesboro-Franklin. Wall’s summary reports that diverse economies, growing population, an educated work force, entertainments, a modern vibe, and warm climates make some metropolitan areas more attractive to investors because these characteristics lead produce low delinquencies, high rental incomes, and low vacancies.
The Trepp report also pointed out that the three poorest performing MSAs in 2018 were Kansas City, St. Louis, and Cincinnati based on high delinquencies, stagnant population growth, and vacant properties.
Big or Small
Large institutional-grade investments are usually high-quality assets in major markets and at price points beyond the reach of individual investors and small partnerships.
Nevertheless, it is still interesting to note that when scoping out a location for a commercial property investment, income, jobs, entertainment, tourism, cultural amenities, and an educated workforce keep a population vibrant, vacancies and delinquencies low, making the location more attractive for investment whether the dollar amount and physical size of the asset is big or small.
REI Capital Resources is a direct lender as well as a broker of funding solutions. We offer short and long-term financing options for real estate investores.
Please give me a call when you find that perfect real estate investment and know how much money you need.